105 posts categorized "investing"

August 01, 2011

The relief rally that was set off by a debt deal has been short lived, as investors leave some fear about Washington, D.C. behind and return to worrying about the economy.

The picture revealed by the ISM manufacturing report this morning is not good, with the number just slightly over the 50 level that is the crossroads between growth and recession. Of course, last week's 1.3 percent GDP growth number also pointed to weakness.

As for the debt deal, this morning some health care stocks -- especially nursing home companies have been down on the expectation that Medicare support for them is being reduced. Companies that make defense equipment also are showing the concern that the U.S. will be cutting defense spending.

June 01, 2011

The Dow Jones Industrial Average plunged 279 points Wednesday as the economic reports -- which have been weakening for weeks -- could not be denied.

Manufacturing dropped sharply. The ADP employment report made investors nervous about the unemployment report that arrives in a couple of days. According to the report, companies added 38,000 workers in May, or only about a quarter of what economists were expecting.

The bad news has been creeping up on investors for a couple of months. I noted in early May that stock market volume was light and mentioned that declines in commodities provided an early sign that all was not right. Wall Street strategists started guiding their clients away from the cyclical stocks, or companies that depend on a strong economy, about a month ago. They were suggesting defensive areas like health care, which did hold up better than the Dow Jones Industrial average Wednesday, but did drop 1.4 percent compared to the Dow's 2.2 percent decline.

How bad was this market plunge? The market remains up 78 percent since the March 2009 low. But Wednesday's 2.28 percent drop in the Standard & Poor's 500 was the worst since last summer's 2.82 percent decline on August 11. Here's Standard & Poor's analyst Howard Silverblatt's list of other rough days in the market.

May 17, 2011

When George Soros called gold the "ultimate asset bubble," he wasn't kidding.

According to a recent 13-F filing with the Securities and Exchange Commission the renowned hedge fund manager dumped most of his gold holdings in the SPDR gold trust ETF (GLD) during the first quarter of this year. He also cut gold stock Nova Gold Resources.

During the last few weeks, rumors circulated that Soros had sold his gold, and both gold and silver have fallen sharply recently -- silver more than gold. Soros' 13-F filing confirms the rumors were true. Investors watch prominent managers like Soros for hints into shrewd thinking. Yet, 13-F filings show actions from the previous quarter and tip investors off to what the "smart money" has been doing in the recent past. Because filings show actions that are more than a month old, they don't provide up to date thinking.

Not all prominent fund managers were responding like Soros to gold. John Paulson, who in 2007 made a huge, successful bet against subprime mortgages, provided a 13-F filing for the first three months of this year that continued to show confidence in gold. At the time of the filing, he still held billions in the gold ETF and added to Barrick Gold Corp., a gold mining company.

April 14, 2011

As investors await earnings reports, Bespoke Investment Group has identified the companies that have had a record of pleasing investors reliably in the eight earnings seasons since the bull market began. The 21 stocks below are the companies Bespoke calls the "cream of the crop."

They have traded higher on the day they have reported earnings more than 75 percent of the time, and beaten earnings and revenue estimates more than 75 percent of the time.

December 21, 2010

Silver is up more than 70 percent, and gold up 25 percent, with both stealing the headlines and investors' affections through much of the year. But the commodity run doesn't stop there. Cotton is up 105 percent, while the pre-recession leader -- oil -- has gathered energy lately, but languished through most of the year.

The good news for financially stressed Americans has been that -- at least until recently -- they haven't had to fear cruel prices at the gasoline pump. But, as you will see below, food has been a different matter.

Each commodity is driven by different factors, but some common drivers: The continuation of the growth spurt in emerging markets such as China, India and Latin America and the flow of money into the system as the Federal Reserve tries to pump up the U.S. economy. Money has to flow somewhere, and take a look at where that's been.

November 23, 2010

If you are tempted to buy commodities after the seven percent recent downturn, Bespoke Investment Group is suggesting a moment of hesitation.

"History suggests that investors may be better served by waiting for lower prices," the analysts said in a note to clients.

Before the recent downturn, the CRB commodity index had climbed 25 percent and hit a 52-week high. According to Bespoke's research there have been only four times in the last half century when commodities hit a 52-week high and dropped five percent. And in all but one time, the index averaged declines over the next one, three and six month periods.

"The only period where the CRB index saw gains over the next one and three monthswas in March 2008," said Bespoke. "In that period, the index went on to hit another new 52-week high (July 2008), but then declined by 58% before bottoming out in early 2009."

Here's Bespoke's data:

Date of 52-Week High Decline Over Next Week Month Three Months Six Months

October 27, 2010

I received this Halloween treat from Jeremy Grantham, the GMO money manager who has been warning for 15 years that the Federal Reserve's spooky policies would hurt our economy and investments with disastrous bubbles.

Grantham, of course, is among the skilled bubble spotters. Think: tech bubble in 2000 and the housing bubble that was inflated with the money the Federal Reserve poured into the system after the tech bubble burst. Think: a 49 percent decline in the stock market after the tech bubble and the 56 percent decline we had in 2008-2009.

You might remember Grantham as the prominent investment manager who -- before the collapse of Lehman Brothers in 2008 -- told me "I am officially scared." I reported in my column in the summer of 2008 that he was buying gold even though he said he didn't like gold. He jokingly said he saw it as an alternative to stuffing money under a mattress.

October 06, 2010

If you've been shunning stocks, you apparently do. Reuters is reporting that the head of research for Societe Generale's private banking group -- which works with people with millions -- has said clients aren't as interested in stocks as they were in the past.

Currently, about 16 percent of the money the firm manages for the wealthy is invested in stocks. That's on the low end of the norm, which ranges from 15 to 20 percent. Yes, you read that right, the wealthy tend not to have much in stocks under any conditions.

More of them have been attracted to alternative investments such as hedge funds and private equity during the last few years. But that interest has also waned. Another Reuters report says the wealthy are walking away from hedge funds after dismal performance. The average has lost about 19 percent, and the assets within hedge funds have dropped about 28 percent since 2008.

There's a saying in the investment business that seems to apply here: "Don't confuse brains with a bull market."

August 27, 2010

As we conclude this disappointing week for the economy and spooky week in the stock market, I can't help but feel like the market reacted today like the old joke: "It felt so good when they stopped hitting me."

People have to be bruised after the awful news this week, or as CDR Credit Derivatives analyst Byron Douglas put it: "Economic data making its way out is just not good. Corporate bond new issuance disappeared, housing is declining once again, core durable goods decreased and second quarter GDP was revised down."

But the "stopped hitting me" part was that analysts were expecting GDP to be revised down to 1.1 percent from 2.4 percent. Instead, the relief from the hitting came when the number was still a lackluster 1.6 percent -- bad, but not as bad as the 1.1 percent that had been expected.

So while the Dow Jones Industrial average gained 164 points Friday and the total market -- the Wilshire 5000 -- gained 197 points, some of the pain of the last three weeks was lifted...but only some of the pain.

For the last three weeks, as economic data took away the cheers of the market cheerleaders, the Wilshire 5000 lost 584 points, or approximately $700 billion. For the month, the index has lost 3.45 percent although the quarter is still positive -- up 3.2 percent.

The pain still is nothing like the depths of the financial meltdown. Since March 9, 2009, the full stock market has climbed 62.8 percent, with a gain of $5.2 trillion. Yet, since all the pain began in October 2007, the market is still down 29.3 percent and we are collectively still out $5.8 trillion.

August 13, 2010

Our brief honeymoon with stocks has come to another abrupt halt as investors once again have decided to flee from risk. Treasury bonds are a favorite security blanket again even though they are promising very little to investors locking up their money for as much as 10 years.

As nervous people have flooded bonds with money, yields on 10-year Treasury bonds have dropped to just 2.7 percent. Meanwhile, the Dow Jones Industrial average fell 320 points on Wednesday and Thursday as the Federal Reserve spooked investors with deflation talk and as more people have filed for unemployment benefits.

Here's where the full stock market -- measured by the Dow Jones U.S. Total Stock Market Index -- has taken investors since happy days faded in 2007.

- The total stock market (which includes most stocks -- both large and small) is still down 29.22 percent from its record close of 15745.39 hit on October 9, 2007. In other words, $6.2 trillion in market value is still gone.

- Despite ongoing losses, the total stock market has climbed 63.90 percent since hitting a low of 6800.08 on March 9, 2009 -- the lowest close in 12.5 years. The 63.9 percent gain that started in March 2009 has restored $4.9 trillion that was lost during the downturn.

-Over the last 52 weeks, the total stock market has gained 7.78 percent, but it has lost 11.6 percent since April's spring fling in the market. (On April 23, the market hit a high of 12,607.66)

- The total stock market is down 1.99 percent this month and has lost 2.11 percent since the beginning of the year.

August 06, 2010

Maybe you aren't a millionaire, but there are plenty in a neighborhood near you. According to this research by Capgemini only New York and Los Angeles have more millionaires than Chicago.

Want to be one of those millionaires? If you are young enough it might be possible.

Let's say you are among the lucky teenagers able to get a job this summer. And let's say at 16, you are able to earn $2,000 and you are so determined to be a millionaire that you invest every penny in a mutual fund that invests in the stock market. You pick what's known as a Standard & Poor's 500 index fund and from now until you retire you earn on average 9.4 percent a year on that investment. And let's say each year for the next five you invest another $2,000 from each of your summer jobs in this same index mutual fund and earn that 9.4 percent.

You will have invested six years of summer pay, or a total of $12,000. You will leave that money invested year after year, and by the time you retire, you will be a millionaire.

Now, I did not assume that you invested any new money after the age of 21. But what if you kept investing $2,000 a year from that point until retiring? Then, you'd end up with almost $2.5 million.

If you don't believe it, try the "compounding calculator" at www.moneychimp.com. Here's what I assumed in my calculation: I assumed you'd invest $2,000 a year until retiring at age 69. I picked that age because the government is pushing out the time for Social Security further and further.

Some people might argue that today's 16-year-old will never be able to retire because Social Security is going away, but I'll reserve that issue for another day. Some people might also argue that it's ridiculous to assume a 9.4 percent average gain on a stock market investment because the last decade has been a loser. They might be right, but 9.4 percent has been the average since 1926 despite some horrible periods. In the Great Depression, the stock market dropped about 90 percent. In 1973-74, it fell 45 percent. And in 2000-2002, it was down 49 percent. But despite those frightful losses there were also years of tremendous gains. So the ups and downs have averaged out to a gain of 9.4 percent annually. If you don't want to use that number, play with others on the calculator I provided.

If you want to be safer than counting on stocks, you could choose U.S. Treasury bonds. But then assume a 5.5 percent annual gain for long-term Treasury bonds. That's their average since 1926. When you choose that number, you will see that a 16-year-old, will not become a millionaire by investing $2,000 a year. But he could increase the chances by saving more than $2,000 a year.

What if his salary goes up 2 percent a year on average throughout his working life? He could increase his savings each year, by adding half of his raise each year to his investments. That would help him become a millionaire -- especially if he pays attention to where and how he invests.

I have made one more assumption here. I figure the individual will do all investing in either an IRA, a Roth IRA, a company retirement savings account such as a 401(k) or 403(b), or a combination of those accounts. Why? When you save that way, your money has growing power because the government doesn't tax it. In a savings account, you don't get that benefit. Every year, at tax time, you have to give the government some of the money you earned in a savings account.

Even if you weren't taxed at all, the 16-year-old who diligently invested $2,000 a year until the day of retirement would not come anywhere near becoming a millionaire with a savings account. Earning two percent a year, he'd accumulate about $184,000.

OK, but some of you might be saying now, "My teenage years are long gone, so there's no hope for me." But don't be too hasty with the doom and gloom. Let's assume you are 50, and you've saved $300,000 for retirement. But the last few years you've been paying $15,000 a year to send your child to college and you've had to ignore your 401(k). Congratulations, junior has just graduated. So let's assume you put $15,000 a year for the next 15 years into a 401(k). You could still end up with about $1 million.

What did I assume? Because you are closer to retirement, you can't take the risk of investing all your money in stocks through a Standard & Poor's 500 index fund. So I figured you would invest in what's called a "balanced fund," which divides your money roughly 60 percent in stocks and 40 percent in bonds. And I assumed your investments would grow on average about six percent a year. Again, my six percent is a guess and you can play with your own assumptions on the www.moneychimp.com compounding calculator.

But give it a shot. To understand more about the investments that might be appropriate for you, click here. Try to join Chicago's millionaires or at least try to get as close as you can.

July 29, 2010

Investors, who think they are safe hiding in bonds, are playing with fire, The Gloom, Boom and Doom Report publisher Marc Faber warned in Chicago.

"When the turn comes and inflation and rates rise, all the money in bonds will move into equities," he told analysts and money managers from throughout the world at the CFA Institute's summer seminar.

In the near term, Faber expects the Federal Reserve to keep rates low, but he warned, "money printing is extremely dangerous." If he was the Federal Reserve chairman, he said, "I'd push rates up and push down the deficits. It would be painful," but in the long run would relieve the threat to the global economy that comes from massive levels of debt.

In 2007, Faber was warning investors to avoid stocks as he observed the growing threat of a financial meltdown. Now, he says the cure for the meltdown is a threat to bonds, which would plunge in value if rates and inflation rise -- as he says they ultimately will.

"At some point people won't want to be compensated at two percent" in bonds, and will put money into stocks, he said. "Government bonds will not be a good investment for the next 10 years."

While Faber sees opportunity in Asian stocks and developing frontier economies, he thinks investors should prepare for financial problems in the U.S. and Europe. He suggests buying physical gold and keeping it overseas in places such as Singapore and Hong Kong. He considers gold exchange traded funds vulnerable financial products rather than a solid asset. He also suggested investors buy art as a hard asset and farmland because he expects food shortages as emerging economies develop. Rather than investing in international companies, he said he'd buy local companies with local brands.

July 28, 2010

Jeremy Grantham, the renowned money manager, who reluctantly bought gold while "officially scared" at the beginning of the financial crisis a couple of years ago, wants nothing to do with gold now.

Rather, Grantham says investors can be prepared to get through either inflation or deflation with blue chip stocks. Grantham told professional investors gathered in Chicago for the CFA Institute's annual seminar, that the market's highest quality stocks are cheap now.

People worried about inflation, "are picking looney stuff like gold," Grantham said. "It has no value and is totally speculative."

During periods of inflation, Grantham said, "stocks always come through. Yes, there are kneejerk twitches. But they are real assets."

Grantham criticized other professional investors for "wanting to get too cute."

He thinks blue chips have become cheap because aging Americans are selling them as they depend more on bonds, and endowment and pension funds -- which used to rely on blue chips -- now are busy following the so-called Yale endowment approach. Under that approach, endowment funds have diverse portfolios involving private equity and multiple types of hedge funds.

Grantham said he's explored some of the strategies -- bringing into his firm, GMO, brainy MIT quantitative people. And yet he said he's found the old strategy of buying quality companies at cheap prices remains the best ongoing strategy.

Grantham, who emphasized emerging market investing in the mid 2000s, continues to invest in emerging markets and developed markets. But he said emerging market stocks are no longer cheap.

July 15, 2010

Goldman Sachs has agreed to pay $550 million in a settlement with the Securities and Exchange Commission over allegations of misleading investors.

According to the SEC it's the largest penalty a Wall Street firm has paid in one of the agency's cases. It brings to a halt the lawsuit in which the SEC had accused Goldman of misleading investors in complex mortgage-related securities called collaterialized debt obligations.

The SEC claimed Goldman failed to tell investors a key piece of information when offering them an investment in the securities. That was that mortgages behind the security were picked by a hedge fund that planned to make money as it lost money. That would have been important information for investors who bought the security to make money.

In the settlement, Goldman called that omission a "mistake," but did not admit wrongdoing.

July 09, 2010

Investors seem to be feeling better about what lies ahead next week -- the beginning of earnings season.

The Dow ended the week up 5.3 percent, with the best weekly gain we've seen for a year. Of course, that gain followed an awful quarter -- the worst since the fourth quarter of 2008. The average U.S. stock fund lost 10.3 percent for the quarter and the average foreign stock fund lost 11.7 percent, according to Lipper.

So maybe investors just got some of their negativity out of their systems for awhile.

I was just asked in a WGN-TV interview how long this rally will last. And, of course, I said no one knows. But as we go into earnings season next week, I suspect the rally will last for awhile if companies do look like the S & P 500 will be increasing profits 27 percent -- as expected. And more important than last quarter's earnings, will be what chief executives say. If they see prospects for profits good through the end of the year, investors will like that. If they hint at concern, I suspect stocks will sell off again.

The assumption in the market today seemed to be that the recovery is OK. Copper and oil both rose -- a sign that investors think demand for the natural resources won't let them down. Alcoa stock also rose over 2 percent today. The company will be the first to give us a view into the future for natural resources when it reports profits next week.

July 07, 2010

The Dow climbed 274 points to 10,018 today as investors were encouraged by retail sales in the U.S. and the fact that stress tests are to be done on European banks. Those tests are supposed to show how banks will hold up if they get hit with bad debts from weak European countries such as Greece and Spain.

You might recall that similar tests done on U.S. banks during the doom and gloom in the market early in 2009, lifted spirits and suggested that the financial system would survive afterall. The tests, done by the U.S. government, were the turning point in a tumbling stock market. So analysts have been saying over the last couple of weeks that if Europe ran "credible" stress tests, that would provide the same assurances to investors buzzing about the risks to the European financial system.

Until now imaginations have been running wild, with investors unable to separate the stronger banks from the fragile ones. Today, some details were released about what the stress tests would cover, and on that basis analysts speculated that losses would not be as extreme as guessed. One estimate by JP Morgan had assumed a 10 to 20 percent loss on Spanish bonds.

Meanwhile, retail sales provided some evidence that American consumers are still willing and able to shop despite an entrenched unemployment rate and an unwillingness to buy homes since the $8,000 tax credit expired. The International Council of Shopping Centers said that sales have been growing at about 4 percent a month -- the strongest since 2006.

That's exactly what investors needed to hear. Lately, a large downturn in consumer confidence and home purchases -- mixed with a 9.5 percent unemployment rate -- caused investors to expect the worst from retail sales and speculate that the economy might dip back into a recession. While encouraging, the good retail news does not point to a turning point for a broad range of American consumers.

Howard Levine, the chief executive officer of Family Dollar stores, said today "the environment remains challenging for consumers, and customers continue to buy close to need."

July 01, 2010

All of a sudden assumptions about currencies are upside down and they matter to you even though you can get lost in the chatter about "weak" and "strong" dollars.

The changes in currency values will have an impact on what you pay for just about anything you buy from another country -- in other words, just about everything you find in stores. Currency will definitely have an impact on a European vacation, if you are lucky enough to take such a vacation. And currency has a huge impact on any investment you make in an international stock fund. Currency can also impair your ability to keep your job.

Now, the dollar is strong and the Euro weak, so your international mutual funds, that are heavy in European stocks, won't be as kind to you as they were when -- just a few months ago -- the Euro was strong and the dollar weak. But your European vacation will be a lot cheaper than it would have been six months ago.

What do I mean by strong and weak? It has to do with the buying power of your money. So, a few months ago, when the dollar was weak and the Euro strong, you had to come up with about $1.50 if you wanted to convert your U.S. money to one Euro and buy something European --either directly on land in Europe or indirectly through a store in your neighborhood. That was a lot of dollars relatively speaking, and so your currency -- the dollar -- made it hard to buy from Europe. But now, with the dollar strong, buying from Europe will be easier for you because you only need about $1.23 to convert to a Euro for your purchases.

You might be thinking now: "Good deal; I get to buy more for less." And that's true on a personal level. But it might not be as good for you as you first think. If you work for a company that sells a lot of products in other countries, your job could be more at risk now than in the past. Why? Because with the dollar stronger potential customers in other countries, will find U.S. products more expensive than they were just a few months ago. In other words, they will need more of their money to convert it to dollars and buy from a U.S. company -- maybe the company where you work. And if those customers are in Europe they might choose a European product, instead, so they can save money, and your employer might be wondering how to boost sales and keep you employed. Likewise, now that you can buy products from Europe cheaper than a few months ago, you might snub the U.S. product and buy from abroad instead. So U.S. companies have trouble selling abroad and the U.S. economy and jobs can suffer.

To get your head around this and see what your dollars will buy in other countries: Try this calculator. Of course, the value of your dollar is changing constantly so any day you try this calculator, you will see different results. Also see more about the impact on your life and investments.

June 25, 2010

With agreement reached on the nation's far-reaching financial overhaul, Wall Street and Main Street have yet to digest the devil in the details.

But the hope is that the massive overhaul of risk-taking will start to rebuild trust in the markets and financial system -- one of the nagging needs of the country at the moment, according to Vanguard Chairman and CEO Bill McNabb.

"No one agrees with every provision, but financial reform needs to happen to restore trust," he said following a speech at the Morningstar conference in Chicago.

"Trust sounds warm and fuzzy," said McNabb. "But it is essential."

McNabb is worried because of the apprehension he sees among Americans of all ages to invest in stocks or stock funds. Without that investment, he said, the economy will not be able to grow with the strength that it has in the past.

A generation of Americans is clearly sitting on the sidelines -- unwilling to invest money in stocks or stock mutual funds because their faith in the system has been so shaken, McNabb said.

"We are on the brink of losing a generation of young investors," he said. "As I talk with young people I hear it. They don't like this volatility" and when they observe everything from the Lehman collapse to the flash crash they wonder whether anyone has a grasp of the systems.

McNabb points out that individuals wouldn't get on an airplane or send their children to school if they didn't have confidence that they would be secure.

June 24, 2010

Jeffrey Gundlach, the star bond fund manager who proclaimed in 2007 that subprime mortgages were going to become an unmitigated disaster, is not optimistic now either.

But rather than fearing runaway inflation, as many Americans do, Gundlach is concerned that the nation has at least a couple of years of deflation ahead and perhaps a double dip recession. Speaking at the Morningstar annual conference in Chicago he said the country is burdened by debt levels so high that they cannot go on much longer without threatening the country.

Yet, fixing the problem is easier said than done, he said. "Well meaning citizens talk about balancing the budget, but if you suddenly take away stimulus you would have a double dip."

Eventually, he said, "some type of polite default on (the country's) debt must happen." Rather than calling it that, however, it might be presented in other terms such as raising the age for getting Social Security and Medicare or taxing benefits."

If something is not done soon, he said, the country might face an emergency -- the inability to find willing buyers of U.S. bonds without paying high interest rates. In such a case, the country would have few options for handling the debt and higher rates or inflation could result.

Consequently, Gundlach has divided the money he manages in the Doubleline Total Return Bond fund, into two very different types of bonds -- long term U.S. government bonds to protect against deflation and high yielding private mortgages as a hedge against inflation. He has purchased the mortgages at deep discounts and figures that even in a depression they would yield at least nine percent.

His advice to investors: It's fine to invest in U.S. Treasury bonds now, but if there is any sign that investors are reluctant to buy U.S. Treasury bonds, or if Treasuries and the dollar stop rallying during times of risk, "sell immediately."

Given tremendous debt levels, he said, investors could lose faith in U.S. bonds and the dollar and history shows that when that happens the plunge occurs quickly.

June 15, 2010

Maybe the day will come when they will pay you to buy ETFs. That will be a great day, but don't count on it.

Still, a price war between ETF -- or exchange traded fund -- providers is working in the individual investor's favor. It is making ETF investing pretty cheap.

Schwab and Fidelity lets people buy some ETFs for free, without paying commissions -- or the fee you get charged when you buy or sell a security. And Vanguard has made their full fleet of ETF's commission-free. Now, competition is also extending to the fees you get charged day in and day out for the management of the ETF itself. Schwab announced that it has cut the fees -- or expense ratios -- in a handful of ETFs it has created.

For example, Schwab has cut expenses in its broad market fund from .08 percent to .06 percent and in it's emerging market fund from .35 percent to .25 percent.

Fees matter. They are the one thing an investor can control and over years of investing higher fees can reduce your return by thousands of dollars. Still, as you pick ETFs remember that it's important to have a diversified portfolio -- with bonds, for example, in addition to stocks. So don't just limit yourself to the cheapest ETFs if that means skipping the full blend of funds you need. In addition, you want funds large enough to allow you to trade in and out easily without paying higher trading costs. And you want to notice what stocks or bonds are in the funds, because those with ETFs with similar names aren't always similar.

I have written about the importance of asset allocation previously, and how to set up a portfolio simply. Read this. Then, see the chart below to see how ETFS compare on fees.

Domestic Equity ETFs

Former

OER

OER Effective 6/8

Vanguard

iShares

SPDRs

U.S. Broad Market

0.08%

SCHB

0.06%

VTI

0.07%

IWV

0.21%

TMW

0.21%

U.S. Large-Cap

0.08%

SCHX

0.08%

VV

0.12%

IVV

0.09%

SPY

0.09%

U.S. Large-Cap Growth

0.15%

SCHG

0.13%

VUG

0.14%

IVW

0.18%

ELG

0.20%

U.S. Large-Cap Value

0.15%

SCHV

0.13%

VTV

0.14%

IVE

0.18%

ELV

0.21%

U.S. Small-Cap

0.15%

SCHA

0.13%

VB

0.14%

IJR

0.20%

DSC

0.32%

International Equity ETFs

Former

OER

OER Effective 6/8

Vanguard

iShares

SPDRs

International Equity

0.15%

SCHF

0.13%

VEA

0.15%

EFA

0.35%

CWI

0.34%

International Small-Cap Equity

0.35%

SCHC

0.35%

VSS

0.40%

SCZ

0.40%

GWX

0.59%

Emerging Markets Equity

0.35%

SCHE

0.25%

VWO

0.27%

EEM

0.72%

GMM

0.59%

*All fund expense ratios are based on the most recent prospectus available as of 6/14/10.

May 27, 2010

Investors nervous about the stock market and scandals on Wall Street, might feel more comfortable investing if they could turn their money over to a trusted fund manager.

One way to spot such a manager, is to find one that has invested at least $1 million of his or her own money in the mutual fund managed for you. Presumably, if your fate and the fund manager's fate are interlinked, you will experience the best that manager has to offer.

So I asked mutual fund expert, Russel Kinnel, of Morningstar, to dig through his data base and show me the funds where managers had a large amount of skin in the game, and also had performed well enough at stock or bond picking to rank in the top third of competing funds for their investment category. We looked at average returns over three years and five years, and we picked funds that charge relatively low fees -- with expense ratios below 1.4 percent -- because high fees destroy returns.

Below, you will see that list. Keep in mind if you seek mutual funds, that you don't select funds by finding the one with the highest return. Rather, you stay within a category and only compare funds in that category. Then, you can seek the fund that has been outstanding for a long time -- five years or longer -- in a category.

For example, if you want a fund that picks large stocks from large U.S. companies like Wal-Mart or Apple, you look within the "large cap" category; not the "global," or "small cap" or "bond" category, just to name a few wrong moves. If you want a bond fund, you don't compare it to a stock fund. Why? Because each investment type is unique and is driven by different forces in the economy. As an investor you pick a combination of funds -- a large cap fund, a small cap fund, a foreign stock fund and a bond fund -- so you have a mixture of investments with different qualities. Read more about these combinations here and see how well the mixtures carried investors through the worst stock market since the great Depression here.

That said, take a look within the categories below to find funds that stand out in their categories and which have managers that invest at least $1 million of their money along side yours -- presumably giving you the very best of their talent.

May 26, 2010

I’m getting those panicky calls again, the frantic calls from people that want to know if they are going to get slaughtered in the market again if they stay.

When you lose 56 percent in the stock market -- especially when it would have been avoidable had government and Wall Street behaved -- the pain lives on.

Yet, since 2007, people didn’t really do as badly as they might have thought. Those that didn’t abandon the market, and held diversified mixtures of stocks and bonds, are actually close to breaking even. But now along comes another scare as Europe threatens to be another Lehman, and the horrible fantasies about “losing everything” keep you awake at night again.

So tell me what’s on your mind now. Are you afraid? Were you afraid in 2008 and early 2009? Are you second guessing yourself or angry that you have to go through this stress another time? Are you sick of earning zero percent interest in CDs? Maybe you want to vent. Maybe you want help or maybe you want to give advice.

As the stock market acts scary once again investors are debating whether to flee or stay put.

They are told that it's next to impossible to figure out when to get in and out of the stock market, and the last few years are clearly a vivid, and maybe painful, example of that. The shocks to the market have come hard and quickly. Few investors were prepared for the 56 percent decline in the stock market from early October 2007 to early March 2009 -- the worst decline since the great Depression. Likewise, the delightful 80 percent upturn that started in March 2009 came when most analysts were predicting the economy was getting worse.

Then, after stock market analysts were cheerleading the market and economy in April, the stock market started down again and is down about 12 percent since April 23.

As nerve-wracking as this uncertainty might be, one tried and true lesson of investing has worked to mitigate losses and help investors take advantage of the upturns that inevitably do arrive in the stock market. That's to set up a diversified portfolio with a mixture of stock and bond funds and hold on through ups and downs in the market.

Take a look below to see what a difference the mixture makes. Just changing the quantity of stocks and bonds you hold makes a huge difference in what you might lose and how fast you might get back to even after a market disaster. On the left, see what's in the portfolios and the quantities. This is called "asset allocation" and studies show this one decision -- deciding how much to own in stocks and in bonds -- is the most significant decision you make as an investor....more important than picking the so-called right stocks or finding a market genius (there aren't many genius types in this business and even the genius usually fails to do any better than the simple index funds I used in this example).

Look at the middle two columns to see how these mixtures of stocks and bonds behaved and what they would have done to your money from the beginning of the market downturn in October 2007 to the end of this April. Then, in the two columns on the right, see how the various portfolios would have grown your money. I'm assuming you started with $10,000 so you can see how the amount increased and decreased over the 2 1/2 year period.

Oct 2007 Through April 2010

March 2009 Through April 2010

Cumulative Return

Value of $10,000

Cumulative Return

Value of $10,000

50 U.S. stock, 10 international, 40 bond

-4.30%

$9,570.33

39.16%

$13,915.89

65 U.S. stock, 15 international, 20 bond

-12.27%

$8,773.43

51.35%

$15,134.68

43 U.S. stock, 7 international, 50 bond

-0.41%

$9,959.06

33.63%

$13,362.68

25 U.S. stock, 5 international, 70 bond

5.51%

$10,550.53

22.15%

$12,215.27

Source: Morningstar, Ibbotson

U.S. stocks are the Standard & Poor's 500, which is used roughly to describe "the stock market" To invest in it, you could choose the SPY exchange traded fund or an index fund like the Vanguard stock market index (VFINX). You can usually find a so-called "index fund" in your 401(k).

International stocks are the MSCI EAFE index, which includes developed nations: primarily Europe and Japan. To invest, you could choose the iShares MSCI EAFE exchange traded fund with the following symbol: EFA. You could also choose a diversified international stock mutual fund in a 401(k).

Bonds in this case are long term U.S. Treasury bonds which you can buy from TreasuryDirect.gov. For a more diversified portfolio with a mixture of bonds, consider the Barclays Aggregate Bond Index or in a 401(k) a bond index fund.

Cumulative Return is the percentage gain or loss on investments during the particular time period

Value of $10,000 is how much you would have had at the end of the time period if you originally invested $10,000

Asset Allocation This process of mixing different quantities of stocks and bonds is called "asset allocation," and while it sounds complicated it's not. The portfolios you see above can be copied with mutual funds from your 401(k).

The idea is to hold more stocks when young so they grow when the markets climb, but to have some bonds as a buffer to cut losses during cruel markets. Financial planners often suggest portfolios of about 70 percent in stocks and 30 percent in bonds for people in their 20s, 30s, and early 40s. For people in their late 40s, or early 50s, 60 percent in stocks and 40 percent in bonds is safer, but not entirely safe as you can see below. In retirement, a planner usually wants a person to hold mostly bonds or CDs.

This approach -- of mixing investments based on your age and retirement plans -- is not perfect. It doesn't save you from losses entirely. But you can see from the Ibbotson portfolios in this chart that the quantities of stocks and bonds you hold, make a huge difference in how much you lose in a scary market, how much you gain in a delightful market, and how long it takes to get back to even once you lose money. After you see that, you can make a choice about the mixture you can stomach. In a different market, the results in each portfolio might be worse or better than you see here, but this chart gives you a sense of how different quantities can act in a sharp downturn and sweet upturn. To see more on setting up an appropriate mixture of stocks and bonds for a 401(k) click here.

April 16, 2010

The Securities and Exchange Commission is accusing Goldman Sachs of fraud in connection with how some of the so-called "toxic assets" involved in the nation's financial mess were packaged and sold to customers.

It's not a criminal case. Rather it's a civil fraud complaint. The SEC claims investors, such as banks, lost $1 billion because they were misled. Here is the complaint.

At the center of the case is Paulson & Co., a hedge fund which allegedly selected the subprime mortgage-related assets for the product that was sold by Goldman. The allegation is that the assets were being shorted by the Paulson hedge fund using credit default swaps. The issue is whether Goldman should have told investors about that. When an asset is "shorted," it means an investor assumes it will lose value. So the idea is that something was being sold to investors wanting to make money at the same time that there was a bet that it would lose money.

Goldman made millions of dollars in fees in the transaction, and given the SEC civil process Goldman can be forced to give up the fees plus pay a penalty.

Goldman stock, and others, immediately began to fall as investors wondered if other financial companies will be charged and just how far reaching the Goldman matter will be.

In a press conference, SEC director of enforcement Robert Khuzami, was asked if he had turned the matter over to the U.S. Justice Department for criminal prosecution, and Khuzami said it would be inappropriate to comment.

Khuzami did say that the SEC has a new department that is digging into what are called "securitized" or "structured products." These products, which were a multi-trillion business for Wall Street, involved bundling mortgage-related securities into bond-like products and selling them throughout the world. As the mortgage industry collapsed, these securities plunged in value and left banks and other institutions throughout the world with large losses. Eventually, the federal government needed to rescue many institutions with over a trillion dollars in taxpayer money.

April 13, 2010

Some mothers nag their daughters about their clothes; others complain about their boyfriends; still others beg for grandchildren, but I nagged my daughters this weekend about opening a Roth IRA.

I told them to deposit as much as they possibly can into a Roth IRA by April 18 so they can protect their money from taxes and have something to live on when they get older.

Here's what I said: "You know your taxes are probably going to go up a lot over your lifetime because you are going to have to pay off the nation's huge deficit, plus pay for Social Security and Medicare for 77 million baby boomers -- by far the largest generation of elderly people ever. Imagine Florida," I said. "America is going to look like that, with grey hair everywhere unless the boomers continue to color it. And you are going to have to pay for a lot of people who lost a huge chunk of their retirement savings in the stock market crash or didn't save enough in the first place -- half of those within 10 years or retiring have saved less than $88,000; that translates into only about $3,520 for each year of retirement if they live to about 90.

"When these boomers are at risk of starving because they haven't saved, guess who will get taxed to take care of them?" I asked my daughters and then answered "You!" without waiting for them to speak.

"To make matters worse, as you are taxed to pay for all these old people, you will end up having less money to spend for your own living expenses, and also will have less money to save for your own future.

"So save now while you can," I concluded in that threatening voice only mothers can do well. Then I moved from threats to helpful.

"You can put as much as $5,000 aside now in a Roth IRA. Check the rules to make sure your income allows it. And if you don't have enough savings to put the full $5,000 into a Roth; start with any amount. Nothing is too small. Why choose a Roth IRA? Because once you put the money into it, the money will never be taxed. When you remove it for your retirement, every penny will be yours. If it's grown to $1 million, that will all be yours free and clear. Uncle Sam never shows up and ask for his share.

"That's different than the money you are saving in your savings account and your 401(k) at work," I added. "Your 401(k) money will get taxed when you remove it for retirement and the money in your savings account is being taxed now.

"And if taxes rise, as I fear they will, you could lose a lot more than anyone imagines now. Depending on your income, it could be well over 40 or 50 percent of your pay as you move up in your career," I said, "So insulating your money from taxes forever in a Roth IRA is tremendously valuable."

My daughters are already investing money in their 401(k) and opened some Roth IRAs in the past because I nagged them when they first started their jobs. So I didn't have to explain how small savings turn into huge amounts over time. But if this is new to you, try this calculator to see how you can turn small savings into huge amounts over a lifetime of saving. Let's say you put $3,500 into a Roth IRA every year for the next 40 years and you earn 8 percent on the investments in the Roth. You will end up with about $1 million.

April 12, 2010

Investors, who saw supposedly safe bond funds turn cruel during the mortgage-related financial mess, have received another victory.

U.S. District Judge William Alsup sided with investors in a case against Charles Schwab Yield Plus Ultrashort Bond Fund (SWYSX).

Ultrashort bond funds are supposed to be mild-mannered funds that don't pose much danger to investors, and the materials investors were given for the Schwab fund suggested it would not subject them to much risk.

Yet, the fund lost more than 35 percent of its value when mortgage-related bonds in the fund plunged in value in 2008. The complaint in the case said investors were not supposed to be subjected to such risks. To avoid risks, the fund's documents said that the fund wouldn't invest more than 25 percent in one industry. By keeping assets in a fund dispersed into many industries, fund managers insulate investors from potential disasters that might strike a single area. But the complaint said the fund had 46.5 percent in mortgage-related bonds.

At issue in the case was whether mortgage-related bonds constituted a concentration in an industry. Judge Alsup said that the mortgage concentration did go outside the 25 percent bounds promised to investors.

The case isn't over however. Next the investors will have to sue for damages. They have claimed they have lost close to $1 billion. At one time there were about $13 billion in the fund, but now assets are reportedly below $200 million. When funds plunge in value, as this one did, investors flee and pull their money.

April 08, 2010

Morgan Keegan, which ran Regions Morgan Keegan bond funds that plunged in value during the subprime mess, is being accused by regulators of fraud, including misleading investors by failing to accurately reflect the value and risks of mortgage-related bonds that soured the funds.

According to allegations by a group of states, investors lost $2 billion as they relied on "misrepresentations, omissions and sales practices" that "enticed investors in the funds." Related allegations have also been filed by the Securities and Exchange Commission.

Funds involved include: Regions Morgan Keegan Select Intermediate Bond Fund, Regions Morgan Keegan Select High Income Fund, Regions Morgan Keegan Advantage Income Fund, Regions Morgan Keegan High Income Fund, Regions Morgan Keegan Multi-Sector High Income Fund and Regions Morgan Keegan Strategic Income Fund. Funds were managed by a former bond star, James Kelsoe, Jr., who is also named in the allegations. They are part of administrative proceeding, which are separate from numerous arbitration cases brought by investors.

The firm has claimed the allegations are not accurate.

According to Morningstar fund analysts, from the stock market peak on October 10, 2007 to the worst point in the bear market March 9, 2009, the Intermediate Bond fund lost 92.8 percent. Even the firm's short term bond fund lost 80 percent.

March 10, 2010

Although about 30 percent of households are dealing with job losses or underemployment, the number of millionaires in the U.S. is up 16 percent over 2008, according to a national survey by Chicago-based Spectrem Group.

Households with net worth of $1 million or more -- not including their primary home -- grew by 7.8 million in 2009, said Spectrem.

The previous year, the millionaire population fell 27 percent as the stock market crashed, real estate plunged and the recession took its toll throughout the economy.

According to Spectrem, the number of ultra high net worth households -- those with net worth of $5 million or more -- advanced 17 percent, or 980,000, in 2009.

There has been a 12 percent increase in households with $500,000 in net worth -- including about 12.7 million households.

The research ties in with a pop in sales at retailers that cater to affluent customers -- companies such as Nordstrom, Tiffany and Coach.

Still, Americans have a way to go before recovering the affluence they had before the market crash and recession. At the peak of the market in 2007, Spectrem says there were 9.2 million millionaire households.

Spectrem conducts an annual survey of affluent households. The firm says its research of 3,000 households has a margin of error of plus or minus 4.4 percentage points.

February 24, 2010

With a wide range of countries -- including the U.S. -- deeply in debt, we have entered strange times for the global bond market.

Rather than simply focusing on which countries might have trouble paying their debts, analysts are coming up with unusual reasons why rating agencies will, or won't, lower bond ratings. Those ratings, of course, help investors decide if they should take a chance investing in certain bonds. And the ratings play a major part in determining what countries must pay in interest to entice investors to buy their bonds. With a pristine AAA rating, a country can sell bonds and pay relatively little interest. With a lower AA rating, the interest rate goes higher to entice investors and taxpayers have to pick up the tab. If the rating goes into the Bs, the pricetag goes even higher for taxpayers.

So ratings matter a lot to taxpayers, countries and bond investors. Yet, in the current debt-heavy environment for the world, the drivers of the ratings are getting perverted by the times. You would think the ratings are based on calculations like: How much debt does a country hold compared to its GDP?

But analysts are pointing out emotional and behavioral reasons why bond rating firms might tinker, or not tinker, with certain country ratings.

For example, I was just looking at a report on the United Kingdom's credit rating on its bonds, or what's called its sovereign credit rating.

The question posed by United Kingdom economist John Higgins, of Capital Economics, is: "What are the chances that a country like the UK might lose its AAA sovereign credit rating," and get downgraded to the lower, riskier rating of AA? He thinks the chances are "greater than generally assumed because the country is facing government debt as a share of GDP that is close to Ireland and Spain." We know those countries are in a mess.

Yet, and here's the interesting part, some analysts have argued that the rating agencies such as Standard & Poor's, Moody's and Fitch, will not lower the UK because then there will be pressure to lower the U.S.'s rating too. Of course, the global response to lowering the U.S. could be tremendous since it is the economic king of the world, and a lower rating would send fear into the markets.

But Higgins argues against thinking that the UK's rating will be safe on the basis of a possible spill-over to the U.S. rating. He notes that he still thinks rating agencies will feel free to respond to the UK's debt because it is "in a much weaker position than the U.S."

February 18, 2010

The Federal Reserve is starting to get the economy ready to fly on its own.

After suggesting for some time that it would withdraw some of the help provided the financial system in the midst of the crisis, the Federal Reserve is now raising the discount rate to 0.75. That's a quarter of a percentage point on the rate the Fed charges banks for emergency loans.

This is not the interest rate that typically causes mortgage interest rates to rise and businesses to pay more when they need to borrow. The Fed made an effort in a statement to show that it still has no intention of raising the federal funds rate yet.

The statement said that "the modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy."

But the market reacted anyway, with stocks trading down worldwide and yields rising on U.S. Treasury bonds. In other words, the rock bottom interest rates of the last few years were trickling upward, and stock investors were starting to prepare for a new chapter of investing. The announcement was made after the U.S. stock market closed Thursday, and U.S. Standard & Poor's 500 futures immediately turned down -- indicating concern.

Investors today will likely interpret the news one of two ways -- maybe fearing that higher interest rates are on the way and could cool down a still weak economy, or perhaps concluding that the Federal Reserve took action because the economy is not as troubled as some fear.

Paul Ashworth, senior U.S. economist with Capital Economics in Toronto, called the Fed's action a "step in the normalization of the Fed's lending role."

Before the crisis began, banks that went to the Fed for emergency loans were charged a 1 percent premium over the fed funds rate and could only borrow overnight, he said. The day after Bear Stearns collapsed, that premium was slashed to 0.25 percent and the maximum duration of loans was extended to 90 days. This rate hike takes the premium back up to 0.50 percent, notes Ashworth, and the Fed also announced that only overnight loans will be available from mid-March onwards.

February 17, 2010

Gold dropped more than $10 an ounce today immediately after the International Monetary Fund announced it was selling a large quantity of its gold reserves on the open market.

Gold was trading at $1105 an ounce, quite a distance below the $1,227.50 December 3 peak that had drawn many individuals into the market.

"These markets are driven by supply and demand so there was an immediate reaction of the market because of the increase in supply," said Kevin Davitt, a metals trader with LaSalle Futures Group.

Yet, while gold investors would be concerned if the IMF were dumping gold, Davitt suspects that the IMF is merely motivated by the need to have cash available for a potential bailout of Greece and other European nations struggling with debt. European nations have been working behind the scenes -- with little public clarity -- about a rescue of Greece, Spain, Ireland, Portugal and Italy if the need arises. All have amassed debt they could have difficulty financing.

Markets around the world are up today, but should you trust the rally?

The latest Investors Intelligence poll, which samples attitudes of top newsletter writers, shows a sudden lack of confidence in the markets. Only 34 percent are bulls. And the change that happened in a blink of the eye is shocking and disconcerting.

Just five weeks ago, more than half were bullish. And we were told this was because there was solid evidence of growth in the economy and corporate earnings power.

Yet, "all it took was an 8 percent correction to cause the bulls to head for the hills," notes Gluskin Sheff economist and strategist David Rosenberg. In other words, the commitment to stay with the rally is, and has been, fragile at best.

Rosenberg sees lack of conviction in the volume numbers for the stock market.

"Follow the volume, not just the price," suggests Rosenberg. What's been missing in the recent rally has been volume.

February 15, 2010

If you are feeling proud of the tax refund you snared after a weekend of working on taxes, I have some bad news for you.

You might have blown it. Although people love getting refunds, a refund typically means you wasted your money.

Why?

When you get a refund it means you paid too much in taxes throughout the previous year. So at the end of the year, the government has to send some of it back to you after you file your tax return. That, of course, means that the government has had the benefit throughout the year of spending and investing your money. And you didn't get the full value of the money you worked so hard to earn.

Consider this: Let's say you just found out that you are entitled to a $3,000 tax refund. That means you overpaid your taxes by $250 a month during the year. And you made the government happy, because Uncle Sam invested that money and earned interest while you got by each month with less of your own money.

Now think, instead, about how you could have used $250 a month to get rid of your credit card debt in 2009. If you don't pay off your cards completely each month, you are being cruel to yourself -- maybe making yourself pay 25 cents a year for every $1 you spent. But you could have been more kind to yourself, If you had received $250 a month instead of letting the government have it, you could have paid $250 more than the minimum payment on your credit cards. That's the way to remove the noose from your neck fast. Try this bankrate.com calculator to see how a little extra money in payments chops years off your debts.

Or, let's assume that you put $250 a month from your paychecks into a savings account. And around mid-year you invested the $1,500 you accumulated into a CD paying 3.5 percent. Instead of getting the $3,000 refund from the government after filing your taxes, you will have a total of about $3,050 because of the interest you earned.

That's not a huge amount of money, of course, but it's better than wasting it. Or to think of it another way, if you saw me on the street today, and I handed you a $50 bill, would you be happy or disinterested?

Of course, this gets even better the longer you keep your money invested. Let's go back to the original $1,500 and assume it stays in a CD for five years. That will give you about $1,780. It would be even more if you invested $250 every month, but I'm assuming you spent about half of your money.

To find out just how much you can make your money grow by investing a little, try the compounding calculator at http://www.moneychimp.com/calculator/compound_interest_calculator.htm. Incidentally, if you invest $1,500 this year and another $1,500 for the next 20 year, you will have close to $50,000 in your CDs -- maybe a lot more as interest rates go up. So think about that when you do receive your refund. Invest it now, and add more money to it each month.

Now, it's important to act so you don't let Uncle Sam have this money instead of you during 2010.

1.Contact your payroll office at work today and tell them you want to change your W-4. That's the form that tells the government how much of your pay to withhold from your paychecks. Add exemptions to the form so you keep more money. But don't over do it. Although you don't want a refund when you do your taxes; you also don't want to find out next February that you need to send Uncle Sam a check for the 2010 tax year. This calculator will help.

2. Make a plan to invest the money you save. You can put it in the bank in a CD, and find the best interest rates at www.bankrate.com by clicking on the CD tab at the top of the page. Better yet, if you have a 401(k) at work, start putting extra money in that with each paycheck. Maybe you think you can't afford to do this. But changing your W-4 will leave you with extra money to invest each payday. And, frankly, you just proved to yourself that you can live with less of your money. You did it all of 2009, and your refund proves it. Now, make that money work for you upfront.

One final note: If you did get a juicy refund this year, make it count. Allow yourself to use maybe 10 percent to treat yourself; then use the rest to pay off credit cards, set up an emergency fund, or start an IRA to save for your future. For more help on investing a 401(k) or an IRA go here.

All three sectors are known as "cyclicals," or businesses that do well when the economy is growing.

Instead of feeling like buying stocks, the people who spoke up voiced worry about Europe struggling with debt, China curbing lending, and Americans holding cash tight in a weak job market. One foreign fund money manager said "I can't see where to go in the world."

Lee sees investor concern clearly. He noted that 40 percent of financial advisers think the market is going down further despite a 15 percent decline in about a third of foreign markets and 8 percent in the U.S. More advisers are more bearish than at any time during the bear market, and the number of bears is near an all-time high.

Lee's strategy: "To make a bet on big (earnings) estimate revisions where analysts are not bullish yet."

One of his top choices: US Steel. The logic behind it: The stock has declined about 30 percent and the company doesn't face serious competition from foreign producers. He noted that China's steel producers face high costs acquiring raw materials. Yet, U.S. producers can use iron ore and coal at a lower price than China;s producers because the raw materials are available in the U.S. China must import raw materials, and has been so desperate to get them JP Morgan analysts say the country is importing from West Virginia.

February 11, 2010

Leaders in Europe say there is an agreement in the European Union to help Greece out with its debts "if needed." While the details have not been outlined, it appears that the EU might provide some kind of guarantee behind Greek bonds.

What would a guarantee do? It would allow Greece to raise money by selling bonds without having to pay the sky-high rates that it would without that backing. Keeping interest down on bonds is important because, when a country must pay a high interest rate on bonds, a spiral of trouble sets in. The higher the interest, the more that costs a country to pay interest charges. Consequently, the country finds it necessary to seek more money from banks or by selling bonds to cover all the costs. And since that means more financial stress, potential lenders won't step up unless they are paid even higher interest. So interest rates keep going up.

This, of course, is also the moment of truth for the eurozone. The countries that have been allowed into the EU were supposedly allowed in because they were strong countries that would not need financial help. Now, it's clear that there was an illusion of strength and the Euro is declining in value compared to the dollar. You can see some of the concerns in the European Union statement released today.

When the EU was established, there was no official mechanism for handling financial troubles among its members. So the EU is making it up now. President Herman van Rompuy emphasized "a shared responsibility" as he announced help for Greece. Although Europe would provide help, he said, Greece was going to have to take on austerity measures.

February 04, 2010

Cisco chief executive John Chambers has provided the type of encouraging outlook for the economy that you want to hear.

He said he's seen a "dramatic improvement" across Cisco's various businesses. Contrasting the present with the past, he noted that last year orders were down 25 percent and recently they were up 11 percent.

Chambers enthusiasm was not the norm. He tends to be restrained in his announcements.

This matters because Cisco is a technological giant and one of the key companies investors watch for a clue into business conditions. The company makes networking equipment, and indicated that both corporations and phone companies are making purchases after months of reluctance.

Chambers said Cisco's sales and profits "exceeded our expectations and we believe they provide a clear indication that we are entering the second phase of an economic recovery."

Meanwhile, Standard & Poor's analyst Sam Stovall gives this snapshot of corporate America's profits. Currently, companies are in the midst of making the reports they are required to issue each quarter to shareholders. Close to half of the 500 companies in the Standard & Poor's 500 index -- or 227 companies -- have reported so far and the remainder will be making reports soon. Among those that have reported so far, 163 companies beat profit estimates by 2 percent or more -- a good sign. Only 35 companies have reported earnings -- or profits -- that were two percent worse than expected.

Perhaps more important, however, are revenues or sales. Investors are watching very closely to see if companies are simply growing profits the easy way -- through cost-cutting -- or actually finding it possible to get customers to buy more. Buying more, of course, suggests some strength in the economy. The revenue picture, so far, is encouraging. Stovall said 146 companies so far have exceeded expectations by 2 percent or more, and 44 fell below expectations 2 percent or more.

Analysts have pointed out that the sales increases are still modest compared to the period prior to the financial crisis. But after the collapse in sales last year, even a blip up is a welcomed sign for the economy.

Cisco reported net income of $1.85 billion compared to $1.5 billion a year ago. And sales were up eight percent.

Typically, when a company reports sales and profits that are better than investors were expecting, investors get excited about the prospects and buy more of the stock. As a result, the stock price rises. And when a major company in an industry does well, often other stocks in that same industry also climb. So a variety of technology stocks might just get a boost today from Cisco's announcement. On the other hand, investors had high expectations for technology companies last year and were so eager to buy stocks then that prices are already relatively high. That could inhibit investors today from paying significantly more.

February 02, 2010

In what appears to be the beginning of a price war that will help small investors, Fidelity Investments has followed Charles Schwab's lead, and has slashed the cost of buying stocks and exchange traded funds.

Fidelity has set a $7.95 commission on trades; even for small investors who rarely buy or sell stocks or funds. Further, the firm is offering 25 iShares exchange traded funds free of any commission. The free ETF program covers the key indexes that allow individuals to assemble a diversified portfolio -- ranging from large and small U.S. stocks to international stocks.

For small customers, who do little trading, the new $7.95 commission will cut trading costs by about 60 percent. Previously, commissions were as high as $19.95. To take advantage of the new commissions, individuals must trade online at Fidelity.com, and have a minimum of $2,500 in taxable accounts, IRAs or other retirement accounts in which they trade. The new prices begin Wednesday.

Although some firms, such as Scottrade, charge lower commissions, the free ETFs are unique.

Schwab, which lowered its commissions for all customers to $8.95 recently, offers some ETFs free, but they are the company's own product rather than popular iShares funds.

January 29, 2010

The month has ended on a dreary note for investors, with the biggest monthly loss since investors were worried about a financial meltdown last February.

Since the peak in the Standard & Poor's 500 on January 19, stocks have fallen about 6.6 percent.

"The question for February is if the 6.6 percent decline is part of a correction or the end of the bull rally," said Howard Silverblatt, senior analyst for Standard & Poor's.

Investors have been using every upturn in the market during the last three weeks to sell stocks and hold onto last year's tremendous gains. Even though GDP rose at a robust 5.7 percent annual rate in the fourth quarter of 2009, investors were unimpressed with the figures released today. When they dissected the GDP numbers many concluded that the growth came from companies building up inventory after letting inventories shrink to almost nothing during the nerve-wracking period for business earlier in the year. So, that inventory build-up is not expected to be repeated again this quarter, and investors are beginning to digest the possibility that growth in the economy will be lackluster -- not a disaster, but not the robust growth needed to power stocks higher from last year's heights.

The two biggest losers since the sell-off began this month have been technology and materials, which is ironic given the drumbeat at the beginning of the month. Market analysts were claiming then that technology would keep climbing because businesses could cut costs by implementing technological advances. In addition, they argued that the popularity of smart phones would keep businesses like Qualcomm humming. Yet, Qualcomm disappointed the market Thursday and Microsoft did it today. Microsoft's chief financial officer Peter Klein said the company wasn't seeing a recovery in spending yet.

Technology stocks have fallen about 9.7 percent since January 19. Even worse are the materials, which are down 11,9 percent -- a pretty sharp decline which followed a recommendation by Goldman Sachs early in the month to buy metals.

Since then investors have been shaken by announcements out of China. The country's financial leaders have been worried about the economy overheating, and have slowed lending. Of course, if construction slows that means less demand for materials. And since China is where investors pinned their hopes after giving up on robust growth in the U.S. and Europe, a slowdown in China matters a lot to the stock market.

January 27, 2010

Beware of the Latin American exchange traded funds you might have loved so much last year.

Although you could have earned a 93 percent return in the MSCI Latin America index, or 106 percent in Brazil last year, holding onto your gains could be tough in 2010. Recently, Latin American stocks have declined 9 percent, prompting Citigroup strategist Geoffrey Dennis to send a warning to clients.

He attributes some of recent selling to a growing discomfort with taking investment risks as new economic uncertainties arise. A key one: Chinese authorities are slowing down lending. The idea is to cool growth a little as observers worry about a bubble, especially in real estate. Of course, if China slows a lot, that could reduce business for Latin American companies which have been providing the commodities that China has needed for its growth spurt.

Dennis also notes that there is a "risk of contagion from the poor fiscal/debt situation in Greece." Citigroup economists have pointed out that a 2009 fiscal deficit of 12.7 percent of GDP will be difficult to cut.

An additional concern: "Similar deficit and debt worries may spread to other weak parts of the Euro Area and to Emerging Europe," says Dennis.

He notes: "This crisis may be a running sore for markets in 2010,"

"While the direct links between Latin America and the events in Greece are small and regional bond yields and CDS (credit default swap) spreads have, so far, been unaffected by this crisis, the risk of contagion, especially via a stronger dollar and weaker regional currencies, remains," concludes Dennis.

Although he doesn't think a major sell-off in Latin American stocks has begun, his advice for the future is: Watch Greece because any deterioration there "may well prove to be a time to turn more defensive and even to sell into strength."

January 20, 2010

Warren Buffett stood next to Barack Obama during the 2008 presidential election, but he was a long distance away from Obama during an interview on CNBC today.

Buffett said in the interview that the public is “very disillusioned” with government – especially Congress – because Washington has been conducting business as usual.

“The stimulus bill was old style Washington – Washington squared,” he said, with Congressmen handing out about 8,000 favors to their constituents through a bill that was supposed to be building jobs and the economy.

“People expected better things by this time,” he said. "People don't like the Christmas tree approach" of hanging favors on bills rather than focusing on the intent.

Rather than praising the one-year old Obama administration, Buffett said government’s best work occurred in September andOctober of 2008, when Federal Reserve Chairman Ben Bernanke faced an “economic Pearl Harbor” and “stretched his authority” to allay a panic in the financial crisis.

By doing that, he assured the world that he wouldn’t make the “Herbert Hoover” mistake of letting financial weakness build as it did in the Depression, said Buffett.

For those who would limit the Federal Reserve’s “independence,” Buffett said, if Congress were “to say, ‘We can do this better than Ben Bernanke,' I’d be very worried.I’d sell some stocks.” And he thought he’d be among many doing the same.

Buffett did not criticize Obama directly and said some of the nation’s economic ills must be resolved by the long process of consumers, banks and businesses working their way through years of excessive debt, or leverage.

But he talked about the proposed tax on banks as a political stunt and said “maybe if I were running for office, I’d be going after the banks too.”

Buffett is a large shareholder in Wells Fargo and called the proposed tax on banks “some kind of guilt tax,” that is focused on banks that have already repaid debts to the government with interest. "I don't understand the tax."

When the government provided aid to banks during the financial crisis, "all of us were taken care of;" not just the banks, said Buffett. "If you are looking for people who benefited, the government could tax auto workers."

January 15, 2010

With all the doom and gloom about real estate you might never guess that REITs -- or real estate investment trusts -- would be so strong in 2009 that investors would far outperform the stock market in them.

Last year REITs provided investors with a return of 40.5 percent, while the Standard & Poor's 500 gained 26.5 percent.

Should you chase after them now?

"No," said analyst Andy Engel in a note just sent to Leuthold Group clients.

"Given the strong recovery in REITs, we are now somewhat hesitant about our holdings for 2010," he said. "The majority of the REITs are closely linked to the economy, and while it has improved, the economy is not expected to become robust enough to drive REITS significantly higher."

If REITs gain another 16.7 percent from here, REITs as a group will have climbed higher than January 2007 -- the point before investors started realizing real estate was about to turn into a disaster. "We don't think things have improved enough to justify that type of price action," said Engel.

What has Leuthold done with its own portfolios? Leuthold is cutting back...even in health care REITs. It took holdings in that segment down from 4 percent to 3 percent.

Meanwhile, individuals seem to be chasing what's worked in the recent past. For the last four weeks they've poured $105 million into REITs.

December 10, 2009

There has been little normalcy in financial matters the last couple of years, and so the measures you take before the end of this year to cut taxes might also need to be adapted to the changing times.

The last two months of the year are typically when people try to figure out if they can delay taking income until the following year and also rush to get as many deductions as possible lined up while time remains. But for affluent taxpayers, tax planners say the likelihood of high taxes in 2011 might make it worthwhile to delay taking some deductions until future years, while also collecting as much income as possible now while taxes are low.

Meanwhile, people who have lost jobs this year might be able to hold onto more of their meager income if they try to pick up deductions now that they couldn’t claim in the past.

Here’s what tax experts suggest:

FOR THOSE WHO LOST JOBS

If you are searching for a job, anything you spend on that job search can be used as a deduction at tax time as long as you have enough expenses total at least two percent of your adjusted gross income. So think: resumes, mailing costs, even unpaid air travel to interviews. Of course, this deduction won’t help if you generally use "the standard deduction" on your tax form instead of itemizing. See http://www.irs.gov/publications/p529/index.html

But if you do take deductions, and you move for a new job, you can claim all the moving expenses.

If you or your children are going to college, you can collect a tax credit of up to $2,500 under the American Opportunity Tax Credit. If you decide to pick up a course or two to enhance your job skills, you could claim up to $2,000 if you have spent enough to qualify. Search "tax benefits for education" at www.irs.gov.

If you decided to set up a business after losing a job and buy health insurance on your own, the costs can be deducted. You won’t get a deduction for COBRA insurance through a former employer, because there is already a government subsidy built into the price you pay, notes Bob Scharin, Senior Tax Analyst at the Tax & Accounting business of Thomson Reuters.

Meanwhile, you can add painlessly to deductions by cleaning out your closets and donating unwanted items to charity. Make sure the charitable organization signs a list of items and values.

FOR THOSE WITH LOWER INCOME THAN USUAL

People who typically can’t claim certain miscellaneous deductions might be able to if their incomes are lower than usual this year and they have sizable expenses. For example, you can’t deduct medical expenses unless they are 7.5 percent of your adjustable gross income. But if you have had a lot of medical expenses not covered by insurance – from dental work, to travel expenses to the doctor and lasik surgery – the expenses might meet the tax threshold.

If you expect higher income next year and have some medical procedures that will take you over the 7.5 percent threshold this year, but not next, consider getting them done now.

To see if it’s worthwhile to try to qualify for deductions, Scharin suggests adding up your mortgage interest, real estate taxes and state or local income taxes that appear on your pay stub. If you don’t have a home or the total is under the standard deduction, then it’s probably not worth putting the effort into amassing miscellaneous deductions. The standard deduction is $11,400 for couples, $5,700 for singles and $8,350 for unmarried people who head households.

BUY NOW FOR SALES TAXES

If you live in a state with low or no income taxes, you probably find it more lucrative to deduct state sales taxes than income taxes on your federal tax return.

So if you have a major purchase to make, you can get tax mileage out of it by buying it before the end of the year. Tax experts think the federal government might change tax laws in the future so that state sales taxes will no longer be deductible – one reason to make large purchases soon.

Even if you deduct income taxes – rather than state taxes – and use the standard deduction, you have only until the end of this year to buy a car worth up to $49,500 and deduct the sales tax on your federal tax return.

FOR THE ENVIRONMENTALLY INCLINED

If you have been thinking about making energy-saving improvements to your home and finish them before the end of the year, you can claim 30 percent of the cost, for a total tax credit of up to $1,500. If you can’t finish the work this year, don’t worry. The credit extends to next year.

There are also incentives for energy-efficient cars. Find details by searching "energy tax credits" at www.irs.gov.

FOR SENIORS

People over 70 ½ usually are required to take some money out of their 401(k) and IRA each year and pay taxes on it. But the government has waived that requirement this year so retirees can regain money they lost when the stock market crashed.

If you already took a withdrawal this year, and wish you hadn’t, Mark Luscombe, CCH Incorporated federal tax analyst, suggests you return the money to the retirement account. The deadline is November 30.

While seniors also have been making contributions to charity directly from IRAs so they could satisfy the government’s distribution rules, it still might be wise to do charitable contributions that way, said Scharin. In the future, there will be less money in the IRA, so distributions – and consequently taxes – will be lower.

FOR BUSINESSES

Under Section 179, businesses can buy $250,000 in equipment before December 31, and deduct the entire amount this year. Luscombe says you might get the same opportunity in the future, but tax laws now call for the provision to revert back to just a $133,000 deduction in a single year.

FOR AFFLUENT FAMILIES

To boost the economy this year, the government temporarily reduced taxes employers took out of paychecks. In the case of high earners – especially in two income families – that might have meant you paid less taxes than you will owe. Luscombe suggests taking a look before the end of the year so you can make adjustments and not be penalized for underpaying taxes.

Increasing 401(k) contributions can help reduce taxes.

Meanwhile, taxpayers also must decide whether it makes sense to try to accumulate deductions through practices such as paying property taxes early. Doing that can throw some people into the higher-tax territory of the alternative minimum tax (AMT). So checking on that possibility before racking up the deductions makes sense. If you had tax software last year, you can play with this year’s numbers to see if you must be wary of the AMT.

Tax planning is complicated this year because there is uncertainty about upcoming taxes. Because the top tax bracket could jump from 36 percent to 39.6 percent by 2011, Luscombe says pushing 2009 income into 2010 – a typical tax strategy -- might not be wise this year. If tax laws change, as some expect, he says affluent people might want to use strategies that move potential income from 2011 forward into the 2010 tax year when they do tax planning a year from now. That means that using the remainder of this year to push some 2009 income into the 2010 tax year could be a mistake. If 2010 becomes overloaded with taxable income you moved from 2009 into 1010, you will have less ability to move 2011 income into 2010 without facing a huge tax bill for 2010.

FOR INVESTORS

With the government running a huge deficit, there has been a lot of discussion about raising taxes. Luscombe says dividends and capital gains could end up being taxed 20 percent or more in future years.

So if it makes sense from an investment point of view to sell stocks, bonds or other investments this year and next, investors could save themselves higher taxes in the years ahead. That’s especially true of people in the 10 to 15 percent tax bracket, who face a zero percent capital gains rate now, said Scharin.

December 07, 2009

After plunging $48 an ounce on Friday, many are wondering if gold is now tarnished and will rise no more.

The gold bugs still adore gold.

But I have spotted a worrisome indicator that gold's days could be numbered and seniors, in particular, had better be careful. In the investing business there is rule of thumb about picking highs for investments....or the peak price that evaporates like a click of the fingers and then inflicts losses on naive investors for months or years later. That worrisome indicator -- or early warning sign -- comes when the taxi driver, the delivery guy, and just about anyone you meet is talking about some delightful "gotta have" investment. At that point of maximum adoration and comfort, the masses have gone wild. And that's often the warning that the smart money is on its way to the exits and the novices will get trampled in the exodus. Think technology stock bubble; think house flipping.

Now, think gold. Here's what disturbs me. Grandma and grandpa are going gold crazy. They are calling and emailing me about how to get into it. They have no idea what is driving gold prices higher or what could stop it. They've simply heard that gold is safe and reaching new highs each day. They want some of that. After all, how can you pass up the magic word "safe" and big profits on an investment? The ads on TV are preying on the naive -- pointing out the climb in gold without suggesting it can end.

And, of course, I'm not the only one hearing about this gold rush. I talked with Richard "Mac" Hisey, president of AARP Financial Friday, and he told me that seniors are calling his office too with the same manic demand for gold. One woman, who was worried because she can't earn enough on CDs to cover necessities, wanted to know if she should use her credit cards to stock up on gold.

Yikes. I wonder if she used the cards for gold before Friday. If so, she might have been a little shaken when gold plunged $48 in a single day last week. Now, if she did use her credit cards, she owes more money than her gold is worth.

Watch out ma and pa. I can't tell you when gold will hit a peak and start leaving you with losses. But I can tell you to beware of the word "safe." Gold is a volatile investment that can crash and lose money. The last time it hit a peak was in 1980. The peak then was $850, and after hitting $850 the price fell and disappointed investors for almost three decades. By 1999, the price was below $300 and patient investors doubted that they'd ever see $850 again. It wasn't until a few months ago that $850 returned. Now, the price is above $1,100, but because the trend has been up doesn't mean it continues up. Just ask the person who thought gold was going above $850 in the 80s.

The bottom line here is this: Gold is not a substitute for CDs. It's known as a risky investment. In other words, it can disappoint you the same way stocks can.

November 18, 2009

But that's simply not the case, according to Leo Larkin, metals analyst for Standard & Poor's. Larkin told me that he is optimistic about gold and thinks it is still going higher. But gold stocks are a different matter. He's recommended that investors sell stocks such as Randgold Resources (GOLD).

Novice investors might be surprised about this. After all, the company just reported a 29 percent sales gain and higher third quarter earnings than analysts were expecting. So you might think: "Where's the beef?"

But Larkin's worried about the price of the stock even though he sees nothing wrong with the company or gold. The stock price, at about $83 a share, is simply too high given what Larkin thinks lies ahead -- including higher commodity price, which would eat away at profit margins for an array of gold companies. Having to dig gold out of the ground makes gold stocks different than physical gold. They can be vulnerable to a downturn when gold, itself, isn't.

For 2010, Larkin's expecting a stock price of $70. So although Larkin likes gold companies and gold, he's saying: "Sell."

Meanwhile, Larkin has seen the estimates that physical gold will go to $2,000. Gold bugs, who love gold, have calculated this by using the 1980 high of $850 an ounce for gold and then adjusting for inflation. Larkin won't rule out $2,000, but he's not convinced it's going there.

November 13, 2009

I found your article about Roth IRA's and investing for beginning savers interesting, but I was hoping you would answer a question I had about funding Roth IRA's. I am a 22 year old student whose parents had me set up a Roth IRA which I need to fund before the end of the year. I was told I may not be able to fund the Roth IRA if I do not have any earned income this year. I have interest and dividend income but no salary or wages. What are the stipulations for funding it and if I can fund it what is the maximum I can take out of my bank savings account to put into the Roth IRA this year?

Thank you and I look forward to your response concerning this matter.

Sincerely,

Rayna

Dear Rayna,

You have to have “earned income,” or money earned from a job or a business in order to put money into a Roth IRA for the year. Money from dividends or investment gains does not count. But there might be a solution. You could get a part-time job over winter break if you are a student. Also, if you did some work for your family this year you could ask them if they would pay you for it and then you could deposit the money into a Roth IRA.

Here are some ideas parents have used to pay children and fund Roth IRAs for them: Say your parents had a party and you served or cooked food for it. Your parents could pay you for this work. Maybe you have mowed lawns, painted the house, cared for siblings, repaired your parents' computer or set up a Facebook page for them. Again, you could be paid for this work. The rule is that the pay must match the job and you cannot be paid for regular duties like keeping your room clean. So parents couldn’t pay you $1,000 for mowing the lawn once, but perhaps could if you did it every week.

Financial planners often encourage parents to look for ways to get their children started in Roth IRAs very early in life because Roths can turn a couple of thousand dollars into hundreds of thousands.

In my book, “Saving for Retirement without Living Like a Pauper or Winning the Lottery,” I describe a strategy one businessman used to turn his child into a millionaire. When the child was just two-years-old, the father hired the toddler to model for some promotional material for the man’s business. He then paid the child $3,000 and put it all into a Roth IRA for the child. By doing that, the money was protected from taxes from that moment on, and with the investments earning about eight percent a year on average, the child was likely to end up at retirement with about $304,000 just based on a one-time $3,000 investment. But the father carried this further – having the child model each year for three years. He paid the toddler a total of $9,000 or $3,000 per modeling job. By retirement that $9,000 was going to be about $845,000. And with a little more savings dumped into the Roth IRA later in adult life, the sum was going to be well over $1 million.

This shows how powerful early savings are in Roth IRAs. If that same toddler had waited until age 35 to invest $9,000, it would grow into only about $90,500 by the time retirement arrived. If you want to see the power of investing small amounts of money early in life, try the compounding calculator at www.moneychimp.com.

November 10, 2009

The credit crunch continues, with lenders getting tougher on everyone from people wanting to buy homes to small businesses trying to grow.

One of the worries about the economy has been that the credit crunch has been particularly mean to potential new employers -- small businesses that need loans to survive and grow. And a Federal Reserve survey of lenders, called the Senior Loan Officers survey, shows evidence that small businesses are indeed missing out on funding.

Some 16.1 percent of banks said they had tightened lending standards for small firms, while not being quite as tough on large firms. For larger companies 14 percent of banks said they were being more cautious than previously in granting loans.

While that might not seem like a tremendous difference for small rather than large companies, Goldman Sachs economist Jan Hatzius says the credit crunch for small firms is actually worse than the survey projects. That's because the survey only measures access to bank loans, "but most large firms have more diversified funding options including the corporate bond and commercial paper markets, which have improved considerably more sharply than the market for bank loans."

The good news in the survey, according to Hatzius, is that the percentage of banks that tightened standards for loans declined compared to the third quarter. The bad news is that if you want a mortgage to buy a home you could have trouble. Says Hatzius: "Lending standards for residential mortgage loans are still being tightened at quite a rapid clip."

In fact, it's getting worse. The percentage of banks tightening mortgage standards for prime mortgages climbed from 21.6 percent in the last quarter to 24.1 percent this quarter. "While this is down from a peak of 74 percent in the third quarter of 2008, it is higher than at any point prior to the current crisis except for the first quarter of 1990, the trough of the 1990-1991 recession."

November 04, 2009

Then, I have a deal for you. Charles Schwab has announced that it is going to let clients trade a handful of exchange traded funds without paying any commission on the transactions.

Of course, there will be fees imbedded in the funds, as there always are. But the fees, or what are called the annual "expense ratio," are low -- 0.08 percent on one that invests in large U.S. companies and 0.15 percent for an international fund. You won't pay commissions when you buy or sell the funds

The company called this a "game-changer" for brokers and the fund industry when it was announced. And I think it could be just that.

Afterall, paying about $12.95 a trade can add up if you do it often. So being able to avoid commissions altogether is a great deal. That's particularly attractive if you do a lot of trading, or if you want to dollar-cost-average into the funds.

The new funds introduced this week are the Schwab U.S. Broad Market ETF, the Schwab U.S. Large-Cap ETF, the Schwab U.S. Small-Cap ETF, and the Schwab International Equity ETF. They track Dow Jones indices. More Schwab ETFs are coming in December, and will allow investors to more finely tune portfolios with international small caps, an emerging market ETF and growth and value style large caps.

October 30, 2009

As U.S. Treasury Secretary Timothy Geithner looks back at the efforts made by government to treat the financial crisis, he says "the money spent was very limited."

The comment might seem startling given his emphasis repeatedly on the need to pull back the nation's deficit once the economy is less "fragile" than it now is. But as Geithner spoke with the Chicago Tribune's editorial board today, he said "I am deeply at peace with the necessity of what has been done" -- including the government's intervention in GM, investment banks, AIG and Fannie Mae and Freddie Mac. He emphasized that the money is getting repaid.

By showing a willingness to devote "overwhelming force" he says the government was able to break the panic threatening the system in the aftermath of the Lehman Brothers collapse.

"I felt that after the TARP was passed we'd broken the back of the panic," he said.

Still, Geithner notes that while there are "encouraging" signs in recent economic statistics, "unemployment probably will rise further." Although some analysts worry that the nation could be going through a "jobless recovery," Geithner says the recovery so far seems to be following a typical path.

Yet, in answer to a question about rethinking tax policy, he said the economy remains too uncertain to "think about what shape restraint will take." Likewise, while applauding improvements in credit availability and securitization through backing of mortgage-backed securities and small business loans, he acknowledged that without the government's hand the credit crunch would be worse than it is. He says it's too early for the government to withdraw support.

"We are in a classic credit crunch," he said, and that, plus uncertainty about economic growth and proposed health care and energy legislation, have caused some reluctance for businesses to spend.

Although some market watchers believe that commodity prices have escalated too quickly and could provide inflationary pressure on the economy, Geithner said he sees those prices as "an encouraging sign." He thinks prices have moved up as "the risk of acute deflation has been taken out of the system. People are pricing in future growth."

About this blog

Award-winning personal finance columnist and author Gail MarksJarvis cuts through the stock market chatter, investing hype and the get-rich-quick strategies that often leave people licking their financial wounds. If you're investing, saving for retirement, starting a college fund, juggling bills, buying a home, or trying to make sense of the latest Wall Street tosses your way, Gail provides sensible advice and welcomes yours too. Gail and a panel of experts will help answer questions about your finances